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Carlyle Makes a Big Move Into Insurance

(Bloomberg) -- Carlyle Group LP is buying a stake in an American International Group Inc.-owned firm as alternative investment managers seek to load up on insurance assets and get more business from an industry desperate for higher returns.

The Washington-based firm agreed to purchase 19.9 percent of DSA Reinsurance from AIG and make it into a standalone insurer, Carlyle said in a statement Wednesday. The deal comes with an agreement that gives Carlyle $6 billion from DSA to invest across its private equity, credit and real asset groups.

Carlyle joins its rivals, including Blackstone Group LP and Apollo Global Management LLC, which have built insurance platforms and brought on executives who can help them attract more business from insurers facing low yields in the fixed-income markets. Carlyle hired Brian Schreiber, the top dealmaker at AIG, two years ago as co-head of the financial services team. Blackstone added an insurance solutions group in January and hired Chris Blunt from New York Life’s Investments Group to run it.

“We were focused on the insurance sector and here we are executing on the insurance sector,” co-Chief Executive Officer Glenn Youngkin said on a conference call with investors Wednesday. The company also released second-quarter earnings today.

Carlyle is using its own balance sheet to invest in the insurance business, creating a vehicle with permanent capital, or long-term funds that the firm can invest without a specific timeline. The company expects the deal to close in the last quarter of the year and the carve out will probably take about 12 to 18 months, co-CEO Kewsong Lee said on the call.

Carlyle raised $12.3 billion in the second quarter, up more than 40 percent from the same period a year earlier, the company said Wednesday in its earnings report. Last week it closed it biggest-ever buyout fund, gathering $18.5 billion as money pours into the private equity industry.

The firm’s new insurance business won’t be consumer facing as it will be handling liabilities for AIG. By working through a reinsurance vehicle, Carlyle may sidestep some of the issues encountered by rivals. Apollo-backed Athene Holding Ltd. has been scrutinized by regulators in California and New York due to complaints from annuity clients. Apollo partnered with two firms this year to take back a block of annuity clients from Voya Financial Inc.

DSA reinsures $36 billion of AIG’s Legacy Life and Annuity and General Insurance liabilities.

AIG CEO Brian Duperreault is curbing risks at the insurer that for years has been embattled by higher than expected costs. He created DSA this year with more than $40 billion of invested assets to back a portfolio of businesses that no longer write new insurance contracts. That’s helped him free up capital for expansion.